Economic risks 'still serious' after slow end to 2010

The risks of a setback to the economic recovery remain serious after growth slowed sharply in the fourth quarter of last year, the British Chambers of Commerce said today.

The BCC's latest quarterly survey showed that gross domestic product growth slowed to 0.4% or 0.5% in the final three months of last year, down from 0.7% in the third quarter.

Figures were hit by a "disturbing" performance from the services sector, which shrank for the first time in 20 years during December, compounded by the freezing weather.

The BCC said the services sector weakness was worrying, given that the impact of the VAT rise to 20% had not yet been felt by retailers.

BCC chief economist David Kern said the private sector was expected to be robust enough to withstand government spending cuts, but the fourth-quarter performance in services showed the threat still posed to recovery.

"Unless reversed, weaknesses in services could have adverse consequences, particularly for jobs. While we expect the private sector to prove sufficiently robust to withstand the impact of the tough deficit reduction programme, the UK recovery is fragile," he said.

"Risks of a setback will be serious in the next few quarters. A new recession is unlikely, but the dangers cannot be shrugged off."

The BCC survey of 5,600 responses across the business sector suggested the manufacturing industry was the star performer of the fourth quarter thanks largely to export sales. Export orders and sales rose to their highest for 16 years and the second highest since the survey began.

The BCC said the eurozone debt troubles were worrying manufacturers if they started to reduce export demand. Firms cited rising raw material costs as another major worry.

Companies across both the services and manufacturing sectors said they expected to raise prices, which will add to Bank of England fears about inflation.

"However, as the figures for the service sector show, we're not out of the woods yet. Faced with public sector cuts and cost pressures, ensuring the health of UK businesses is critical to a sustained economic recovery."